The Bank of Japan signals a potential interest rate hike, yet the yen remains under pressure.

Shinichi Uchida,Xinsheng Foreign Exchange Deputy Governor of the Bank of Japan (BOJ), reiterated in a speech to lawmakers on Monday that if future economic momentum picks up and core inflation steadily reaches its target, the Bank of Japan will continue to implement gradual rate hikes to achieve its price targets. This statement reinforces the central bank's stance on flexibility in exiting ultra-easy policies.

No Set Path for Policy, Data-Driven Approach is Key

Uchida emphasized that the direction of global trade policy remains highly uncertain, and therefore the Bank of Japan will not preset a future monetary policy path but will make decisions flexibly based on actual economic and inflation data performance.

"We will not set a stance in advance but will judge based on reality whether the economy and prices are on the projected path," Uchida added.

Although Japan's first-quarter economy contracted by an annualized rate of 1.8% due to weak external demand, the Bank of Japan, after its April meeting, maintained its assessment that wage growth and price recovery will support the pace of future policy normalization.

Technical Outlook for USD/JPY Remains Weak, 145-Level Key Support

In the currency market, the USD/JPY found support near 145.00 and experienced a slight rebound, but overall it remains within a downtrend since 147.80.

Looking at the technical chart, the current exchange rate hovers below the 20-day moving average, with the 5-day and 10-day moving averages forming a bearing pattern, indicating significant overhead pressure. MACD is below the zero line with the momentum bars in the negative zone, and RSI has been fluctuating between 40 and 45, reflecting insufficient bullish momentum.

If the exchange rate breaks below the 145.00 threshold, it could fall further to 143.50 or 142.80; conversely, if it effectively breaks above 146.30 and climbs over the channel's upper bound, it may relieve downward pressure and re-challenge the 147.80 high.

Outlook: Interest Rate Expectations and US Yields Remain Dominant Factors

Overall, despite the Bank of Japan signaling the possibility of continued rate hikes in the medium term, the USD/JPY remains constrained in the short term by changes in US yields and market risk-aversion sentiment. Investors need to closely monitor subsequent Japanese economic data and US bond yield trends to assess whether the exchange rate can break free from its current weak position.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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